Stretch Wrap Pricing on the Rise in Feb 2020

North America: Contract PE prices settled higher by 4.0 cents per pound in January as sellers achieved the increase they have been pursuing since September of last year. PE producers have announced their intent to increase contract prices by an additional 4.0 - 5.0 cents per pound in February. Domestic demand appears to be recovering as buyers restock inventories that were depleted at year end.

Resolution of the settlement was complicated by the fact that the January negotiations were characterized by multiple diverging market indicators. Factors cited by sellers in support of a price increase included the following:

1.       Reduced inventory levels: IHS Market inventory analysis indicates that PE resin days of inventory have declined in each consecutive month since July 2018. As of December, the calculated resin days of inventory stood at 36.1 days and reflected the fewest days of available inventory since February 2017. The referenced inventory decline is a function of reduced production during the latter part of 2019 coupled with the ongoing ramp-up of export volumes. LDPE products were reported to be most affected both in the domestic and international markets.

2.       Rising export prices: Export prices recorded during January averaged 2.0–3.0 cpp above December levels. International PE prices appear to have responded to the reported shutdown or slowdown of high-cost resin producers in Asia and Europe who in recent months have been operating at significantly negative margins.

3.       Increased domestic demand: While official January results are not yet available, market feedback suggests that many PE resin buyers were restocking depleted inventories following an inventory drawdown that developed during the fourth quarter of last year. Another factor that may have influenced demand was the widely held expectation that PE prices were likely to increase during the first quarter. While many were surprised by the success of the January price increase, most accepted the prospect that contract prices were likely to increase at some point during the quarter and many may have been restocking ahead of higher near-term prices.

4.       Delayed start-up of new production capacity: All three PE producers (LyondellBasell, Formosa, and Sasol), who until recently anticipated starting new production capacity by the end of 2019 or very early 2020, experienced delays to their start schedules. The new LyondellBasell capacity is currently expected to start-up in February while the start time for the new Sasol and Formosa lines appears to be delayed until the second quarter.

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